Pakistan’s Home-grown Economic Development Plan: what does the draft include?

Pakistan Prime Minister Shehbaz Sharif is set to unveil an ambitious Home-grown Economic Development Plan tomorrow on the country’s 77th Independence Day.

The plan has been proposed by the Home-grown Economic Development Plan committee, which includes international economist and Foreign Commonwealth Development Office Policy Adviser Professor Stefan Dercon.

According to a draft of the plan, if the measures are fully implemented, Pakistan will create one million new jobs and attract an additional $10 billion private investment per year by fiscal year 2027-28.

The plan also aims to expand annual exports to $60 billion by FY28 and increase the export share in GDP to about 15% from 10% currently.

Under the plan, the economy can sustainably grow by 6% per year by FY28 which can solve a balance of payments crisis that would emerge after a loan program with the International Monetary Fund ends.

So, what does the draft Home-grown Economic Development Plan include?

Sources informed Nukta that the plan has three areas of focus:

1. Encouraging private investment as it is essential for labor productivity growth, job creation and economic growth comparable to similar-sized countries.
2. Expanding exports as it they are essential for sustainable growth.
3. Optimizing public finance by expanding tax revenue and distributing tax collection more fairly across firms and households.

Tax collection

The draft includes recommendations to separate taxation policy making from the Federal Board of Revenue (FBR) and completely reform the tax body for improved tax collection including through digitalization.

To increase the tax to GDP ratio to 13.5% in three years, the government needs to establish a new policy unit under the Ministry of Finance that will work closely with the Prime Minister’s Office to assess all tax, energy tariffs, custom tariffs and subsidies based on economic principles, it states.

Another recommendation is to ensure tax collection from retailers, agriculture and construction and real estate reflects their share in GDP.

Business and investment climate

The draft plan recommends making Pakistan’s business and investment climate welcoming, including by implementing the Asaan Karobar Act and a regulatory guillotine at the federal level to reduce the cost of doing business by up to 3% of GDP.

In addition, it also recommends implementing sector-specific investor-friendly policies to simplify procedures, enhance investor confidence and decrease investor complaints by 25% in the next 12 months.

Moreover, it advises the government to simplify inspection regimes to bring down their cost and time, regardless of sector and business size.

It also recommends setting up walk-in and digital Business Facilitation Centers to bring down time to process No Objection Certificates by 50% with 5,000 businesses served within the next nine months.

Another recommendation is to set up an investment ombudsman to address grievances on fair business practices and bureaucratic hurdles with 50 disputes settled in the next 12 months and the creation of a level playing field for any business.

The committee also proposes the government simplifies business visas and investor match-making, realizes export-oriented industrial relocations from China to Pakistan, including through joint ventures, and develops a project pipeline for up to 50 investable projects for next three months to increase foreign direct investment.

Energy costs

The committee’s recommendations to reduce energy costs include creating competitive electricity markets in which multiple suppliers sell power directly to users, deregulating the midstream and downstream gas and oil market, deregulating oil pricing and facilitating entry of new players in the gas sales business.

The Home-grown Economic Development Plan draft also recommends improving governance and regulatory frameworks to tackle elite capture through the constitution of new boards, elimination of external influences in management as well as strict observance of the State-Owned Enterprises Act and Policy.

Removing market distortions through phasing out of subsidies and cross-subsidies in all energy markets, with vulnerable users targeted directly through social protection, and active restructuring and settlement of circular debt are also among the plan’s recommendations.

Protected economy

The draft states that the Pakistani economy is heavily protected compared to similar countries when considering all custom duties, additional custom duties and regulatory duties.

Furthermore, the structure of tariffs and taxes is not favorable for exporters.

It has recommended the government reduce the tariff reduction target (CD+RD+ACD) from 19.56% at present to 14.29%, simplify slabs and remove exemptions under the Fifth Schedule without compensatory indirect taxation on the same items and bring tariff policy in line with comparable economies.